Japan's inflation slows ahead of interest rate decision, is it a foregone conclusion that there will be no rate hike in July?
Tokyo's core inflation unexpectedly eased to 2.9% in July, but food prices rose by 7.4%, continuing to squeeze Japanese household consumption capacity. Although the overall inflation decline provides room to maintain an accommodative policy, structural food inflation and global trade uncertainties still pose dual pressures. The market generally expects that the Bank of Japan will keep interest rates unchanged next week
Tokyo's core inflation rate unexpectedly eased to 2.9% in July, increasing the likelihood that the Bank of Japan will maintain its accommodative monetary policy next week, with the rate hike agenda likely to be further delayed.
On July 25, official data from Japan showed that the core consumer price index (excluding fresh food) in Tokyo rose by 2.9% year-on-year in July, down from a 3.1% increase in June, in line with the consensus expectations of economists surveyed by Quick. As a leading indicator of national inflation trends, this data provides important reference for the upcoming Bank of Japan policy meeting next week.
However, despite the overall easing of inflation in Tokyo, food price pressures are intensifying, with the increase in food prices excluding fresh food rising from 7.2% in June to 7.4%. This trend reflects that Japanese consumers are still facing severe cost-of-living pressures.
A survey by the private research firm Teikoku Databank of 195 major food manufacturers showed that these companies plan to raise prices on 2,105 products in July, approximately five times the number from the same period last year. The survey results indicate that, in addition to soaring raw material prices, rising utility costs, increased labor costs, and climbing logistics expenses are all adding to the cost burden on businesses. The cumulative effect of these multiple pressures has forced food companies to pass costs onto consumers.
In the current macroeconomic environment, the Bank of Japan faces complex policy choices. On one hand, the marginal decline in overall inflation provides room to maintain an accommodative policy; on the other hand, structural food inflation pressures continue to squeeze households' real purchasing power. More importantly, the uncertainty surrounding U.S. tariff policies poses new challenges for Japan's export-oriented economy, prompting the central bank to adopt a more cautious stance in policy adjustments.
Market analysts believe that against the backdrop of a volatile global trade environment, the Bank of Japan is likely to choose to wait and see, awaiting more economic data to assess the actual impact of external shocks before deciding whether to adjust its monetary policy stance. The market generally expects that the Bank of Japan's policy committee will choose to keep the current interest rate level unchanged next week
